SINGAPORE (Mar 2): CIMB is maintaining its “add” call on AEM Holdings with a higher target price of $8.19 from $6.62.
This comes after AEM's FY17 net profit of $31.5 million came in 6% above the research house’s forecast.
In a Thursday report, CIMB analyst William Tng believes AEM is making good progress with its key customer, presumably chipmaker Intel.
This is because the group is able to meet the five-month lead time to deliver a Test Handler (TH) compared to six months previously, says Tng.
“AEM is also able to support its customer on a 24/7 basis worldwide. We also note that its customer has committed to finish building a new fab in North America and could possibly be expanding capacity in Israel too. These developments will drive more demand for AEM’s Test Handlers,” says the analyst.
Looking ahead, the analyst expects the group’s gross material margin to improve by at least 1% pt in FY17 as vision solutions from IRS accounted for an estimated 10% of AEM’s cost of materials.
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With higher capacity driven by AEM’s new Penang plant, which should contribute fully in 1H18, Tng says he is now even more positive on the group as this should hint at a larger total addressable market (TAM).
“We now assume a TAM of 250 units versus 180 units previously. At the same time, we also factor consumable contributions into our FY19-20 estimates. These lead to an 8.4- 23.8% upward revision in our FY18-19 earnings forecasts,” he concludes.
As at 11.56am, shares in AEM Holdings are trading 3% higher at $6.49 or 4.71 times FY18 book.
